Amazon’s price cuts won’t solve Whole Foods’s problems
Washington: An epic food fight began in earnest on Monday, as Amazon.com Inc. closed its acquisition of Whole Foods Market Inc. and slashed prices by as much as 43% on key items.
There’s no doubt the price cuts are an important step to helping the troubled grocery chain appeal to a wider set of customers.
But as we assess just how much the grocery business will be rattled by this particular move, it’s important to remember that price isn’t the only reason Whole Foods has been struggling lately. It’s also because, unlike its new corporate parent, Whole Foods simply is not an “everything store”—and that stubborn truth limits its ability to attract convenience-minded shoppers.
The Whole Foods ethos is to carry only products that meet its standards, on attributes such as whether they are organic or free of certain ingredients or additives. They don’t carry lots of familiar brands, and that means many shoppers can’t complete their weekly shopping with a trip to Whole Foods alone. Even if they prefer grass-fed beef, they might have a stubborn toddler that will only go down for a nap if bribed with Jell-O. Even if they prefer organic milk in their cereal, they might count Coca-Cola as a regular guilty pleasure.
For a while now, chains such as Kroger Co., Publix Super Markets Inc. and even Wal-Mart Stores Inc. have offered shoppers the opportunity to get all of those products in one stop. And that—not just price—is a big reason why Whole Foods is having a hard time expanding its market share.
As Amazon well knows from the way it has upended shopping patterns with its Prime program, convenience often wins the day in retail.
Diana Sheehan, a grocery industry analyst at Kantar Retail, notes her firm’s consumer research finds that many shoppers consider it important to buy organic produce and meat. But they don’t particularly prioritize organics when it comes to center-aisle items such as packaged food and toiletries.
So, sure, Whole Foods can offer a product that is comparable to, say, Oreos, at a competitive price. But as shoppers don’t much care about whether things like snacks, soap, or paper towels are organic, they might simply want to stick with the national brands they recognize and like.
There are ways Amazon could try to make Whole Foods into more of a one-stop shop. For example, the e-commerce giant has said it will install Amazon Lockers in certain Whole Foods locations that serve as pickup points for online orders. You can envision a set-up in which shoppers order their non-organic, brand-name products online from Amazon, have them delivered to a Locker, and then pick them up during a Whole Foods trip, where they also buy cage-free eggs and responsibly farmed salmon.
But that’s still a multi-step process, and it’s not a sure thing shoppers would find that terribly convenient.
Amazon deserves praise for quickly attacking Whole Foods’ “Whole Paycheck” reputation. But as long as the grocery chain carries such a limited assortment of goods, there’s still a ceiling on its growth prospects. Bloomberg Gadfly